Mumbai ITAT has held in Raj Babbar vs Income Tax Officer that deeming provisions of section 50C does not restrict exemption u/s 54F and exemption u/s 54F can extend so as to cover the deemed Full value of consideration of capital asset as determined u/s 50C.

Facts: •
The assessee is a Member of Parliament (MP) and a film actor. During
the year relevant to the AY 2008-09, he sold a plot of land for Rs. 8
lakhs and worked out long term capital gains (LTCG) of Rs. 5,84,837. In
this case the cost of acquisition after indexation worked out to Rs.
2,15,163.

•
Since market value of the plot as per Stamp duty Authorities was Rs.
16,87,000, the AO by invoking section 50C, recomputed LTCG at Rs.
14,71,837. However, this fact was not disputed.

•
The assessee claimed exemption under section 54F in respect of LTCG as
he applied them in construction of a residential property. However,
according to the AO, the assessee also owned a house and therefore, as
per section 54F(1)(a), assessee was not entitled for deduction. AO also
noted that assessee invested the said capital gains prior to two years
before the transfer of asset. Accordingly, the claim was rejected.

•
Before the CIT(A), the assessee informed that the sale proceeds were
utilized in the construction of additional two floors on the existing
'only' residential Bungalow. A sum of Rs. 33 lakhs was spent during the
period 1.4.2006 to 31.3.2008 and cost of construction of additional
floors was at Rs. 17,65,752. It was submitted that the assessee owned
only one house on which additional floors were constructed.

•
The CIT(A), though confirmed the AO's finding on invoking of section
50C and computation of LTCG at Rs. 14,71,837 but held that the assessee
was eligible for exemption only on the originally computed capital gains
of Rs. 5,84,837, thus denying the balance exemption. According to him,
LTCG relatable to the increased market value as per the ready reckoner
of State Revenue Office should not be available for deduction under
section 54F(1).

• Aggrieved, the assessee went in appeal.

HELD

• The issue relates to the extent of capital gains exempt under section 54F(1) when 'full value of the consideration'(FVC) as per section 50C is adopted for computation of capital gains.

•
According to Clause (a) of section 54F(1), if the cost of the new asset
is not less than the net consideration in respect of the original
asset, there is no chargeable capital gains under section 45. In the
instant case, the cost of the new asset is Rs. 17,65,752 and 'net
consideration' is Rs. 16,87,000 as per sec 50C and Rs. 8 lakhs as per
the sale deed.

•
It is noted that the deeming fictional meaning of section 50C cannot be
imported for the purpose of explaining the meaning of the 'net
consideration' mentioned in Explanation under section 54F(1). In effect,
for working out the exempt income also, the deeming fiction does not
have any effect in the circumstances where the cost of the new asset is
not less than the net consideration whether computed as per section 48
or 48 read with section 50C.

•
As per above, it is noticed that with investment of Rs. 17,65,752 in
new asset, the cost of the new asset is not less than the net
consideration (NC) in respect of the original asset. Of
course, the 'net consideration' has two variants depending on FVC
adopted and in this case, the NCs are quantitatively lesser than the
cost of the new asset leaving no chargeable capital gains under section
45. Therefore, the assessee is not chargeable to any capital gains
considering the given facts and also the said clause (a) of section
54F(1).

• Clause (a) of section 54F(1) reads as under :

•
If the cost of the cost of the new asset is not less than the net
consideration in respect of the original asset, the whole of such
capital gains shall not be charged under section 45.

•
Thus, on the facts of the case, where the assessee undisputedly
invested 33 lakhs (1.4.06-31.3.2008) in toto and Rs. 17,65,752 (July
2006-March 2008) was invested during the specified period mentioned in
section 54F(1), considering the provisions of the clause (a), the
assessee is not chargeable to gains for taxation under section 45.

IN THE ITAT MUMBAI BENCH 'D'

Raj Babbar

v.

Income-tax Officer - 11(1)(3)

D. MANMOHAN, VICE-PRESIDENT

AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER

IT APPEAL NO. 6497 (MUM.) OF 2011

[ASSESSMENT YEAR 2008-09]

JANUARY 2, 2013

H.N. Motiwala and Dalpat Shahfor the Appellant.A.B. Kolifor the Respondent.

ORDER

D. Karunakara Rao, Accountant Member -
This appeal filed by the assessee on 26.9.2011 is against the order of
CIT (A)-3, Mumbai dated 28.06.2011 for the assessment year 2008-2009.

2. In this appeal, assessee raised the following grounds which read as under:

"1.
The CIT (A)-3, Mumbai erred in holding that the deduction u/s 54F was
allowable with reference to sale consideration of Rs. 8,00,000/-
actually received on sale of plot of land at Lonavala reinvested in
construction of the residential house and not with reference to Rs.
16,87,000/- being the full value of consideration deemed to have been
received as adopted by the Assessing Officer u/s 50C of the Income Tax
Act.

2.
The said CIT (A) erred in not appreciating that the appellant had
invested Rs. 17,65,752/- for construction of two additional floors over
the existing residential house within the stipulated period u/s 54F and
the appellant was not the owner of more than one residential house and
therefore, deduction of Rs. 14,71,837/- being the Capital Gain as
computed by the assessing Officer was allowable u/s 54F.

3.
The said CIT (A) also erred in holding that the appellant was entitled
to deduction u/s 54F in respect of construction of only one of the two
floors constructed above the existing residential house when the
appellant explained tat both the floors constituted one house only.

4.
The said CIT (A) on the above grounds, erred in holding that the
appellant was entitled to deduction of only Rs. 5,84,837/- claimed by
the appellant."

3. There
is a preliminary issue to be attended by us and it relates to the
condonation of delay of 13 days in filing the appeal before the
Tribunal. In this regard, assessee filed an affidavit dated 27.7.2012.
According to the assessee, the CIT (A) order dated 28.6.2011 was
received on 15.7.2011. Counting from 15th July, the due date for filing
appeal before the Tribunal expires on 15.9.2011. Whereas, the appeal was
filed on 26.9.2011 and the delay is 13 days. In para 5 of the
affidavit, assessee mentioned that he was out of Mumbai from 10th
September, 2011 to attend to the Assembly Elections in UP held in
January, 2012. However, assessee signed the appeal papers on 19.9.2011
as seen from the Form of appeal in Form no 36, the verification portion,
i.e. 4 days after the expiry of the due date. Thus, the delay of 4 days
is attributable directly to the assessee. Rest of the delay is
relatable to the staff or the Representative or to the closed holidays,
if any. Regarding the reasonable cause for delay, assessee attributed
the same to his busy schedules and political engagements. He has made a
prayer for condoning the small delay and admitting the appeal for
addressing to the grievances of the assessee. On the other hand, Ld DR
dutifully opposed the admission of the appeal and mentioned that the
Bench may take a view in the matter.

4. On
perusal of the contents in the affidavit, we find that the assessee is a
sitting MP and is occupied with various responsibilities as a
representative of people in general and election in UP in particular.
Although it is not denied that the assessee is in Mumbai on the due date
i.e. 15.9.2011, as he left Mumbai only on 10.9.2011, he could only sign
the papers on 19.9.2011 due to his political schedules. Thus, the
submission that he is a busy individual is undisputed. Considering the
smallness of the delay and the reasons given in the affidavit, we find
the delay of 13 day is condonable and therefore, we admit the appeal.

5. Briefly
stated the relevant facts of the case are that the assessee is a Member
of Parliament (MP) and a film actor. He is proprietor of M/s. Babbar
Visuals too. Assessee filed return of income declaring total income of
Rs. 2,51,470/-. Assessee purchased a plot of land for Rs. 48,812/- at Lunawala in
1984 and sold the same for a sum of Rs. 8 lakhs and the Long term
capital gains works out to Rs. 5,84,837/-. The cost of acquisition after
indexation works out to Rs. 2,15,163/-. During the assessment
proceedings, AO noticed that market value of the plot as per Stamp duty
Authorities is Rs. 16,87,000/-. Accordingly, AO pressed the provisions
of section 50C of the Act in to service and recomputed the long term
capital gains at Rs. 14,71,837/- against the assessee claim of Rs.
5,84,837/-. Further, AO noticed that assessee claimed exemption u/s 54F
of the Act in respect of the capital gains as he applied the gains in
construction of a residential property. In toto, the assessee spent Rs.
33 lakhs in respect of the property. There is no dispute about the
invoking the provision of section 50C between the parties. The dispute
is restricted to the claiming of deduction u/s 54F of the Act. As per
the AO, assessee also owns a house, therefore, as per section 54F(1)(a),
assessee is not entitled for deduction. AO also noted that assessee
invested the said capital gains prior to two years before the transfer
of asset. Accordingly, the deduction claim was rejected and the
assessment was completed determining the total income of Rs.
36,66,250/-. Aggrieved with the same, assessee filed an appeal before
the CIT (A).

6. During
the first appeal proceedings, assessee informed that the sale proceeds
were utilized in the construction of additional two floors on the
existing only residential Bungalow at 20, Nepathy Gulmohar Road, Ville
Parle (W), Mumbai. A sum of Rs. 33 lakhs was spent during the period
1.4.2006 to 31.3.2008. Total cost of construction of additional floor
was at Rs. 17,65,752/- and cost prior to July, 2006 was at Rs.
15,34,353/- , which was spent for purchasing TDR, BMC permission etc. It
was submitted that the assessee owns only one house on which additional
floors are constructed. Other contentions of the assessee read as
under:

"…………The
AR contended that the appellant is entitled to claim of deduction u/s
54F r.w. first proviso as the appellant does not own more than one
residential Bungalow at the time of construction of new two floors on
the same. Further, the construction of new asset is within 3 years from
the date of transfer i.e. from date of sale on 6.7.2007. The AO also
stated that the construction was started from July, 2006 and completed
up to March, 2008 and the total cost of construction of one floor was at
Rs. 17,65,752/- during the period and cost prior to July, 2006 was at
Rs. 15,34,353/- for purchasing TDR, BMC permission etc. The above
expenses in far exceed of long term capital gains. The total cost during
July, 2006 to March, 2008 was amounting to Rs. 33 lakhs. The AO was not
therefore, justified in rejecting the claim. The AR relied in the case
of CIT v. P.V. Narsimhan (181
ITR 101) (Mad.) wherein it was held where the assessee has
reconstructed the demolished first floor in the existing house within
stipulated time allowed u/s 54. The assessee is entitled to get
deduction u/s 54 as it amounts to construction of new unit. In CIT v. J.R. Subramanian (165
ITR 571) (Kar) it was held the new construction started before the date
of sale but completed within a stipulated period from the date of sale
as provided u/s 54 will be entitled the claim u/s 54 of the Act. In B.B. Sarkar v. CIT (132
ITR 150) (Cal) it was held that amount spent on both purchase of house
and further on construction of additional floor on it, is eligible to
claim deduction u/s 54. In Saleem Fazelhoy v. DCIT (106
ITD 167) (Mum) it was held that expenditure incurred on making house
habitable is considered as investment in purchase of house, and hence
deduction u/s 54F is allowable. The AR submitted that the claim made u/s
54F is proper as the appellant has fulfilled all the conditions as
provided u/s 54F read with the first proviso. Therefore, relying on
above decision the AR submitted the deduction of Rs. 14,71,837/- of long
term capital gains u/s 54F of the Act is allowable to the appellant."

7. On
considering the above submissions of the assessee, CIT (A) partly
allowed the appeal of the assessee and confirmed the AO's finding on the
applicability of the provisions of section 50C of the Act and
computation of long term capital gains of Rs. 14,71,837/-. However, he
held that the assessee is eligible for exemption only on the capital
gains of Rs. 5,84,837/-. Thus, CIT (A) denied exemption on the balance.
CIT (A) is of the view that the provisions of section 50C creates a
fiction in the provisions for computing the capital gains only whereas,
actual consideration received is Rs. 8 lakhs which is computed as per
the provisions of section 50C r.w.s 48 and section 54F(1) of the Act.
The long term capital gains relatable to the increased market value as
per the ready reckoner of SRO should not be available for deduction u/s
54F(1) of the Act. Accordingly, AO directed to allow exemption only on
the capital gains of Rs. 5,84,837/-. In the process, he has taken the
strength from the decision of ITAT, Bangalore Bench in the case of Gouli Mahadevappa v. ITO [2011]
49 DTR 207 (Bang) which is relevant for the proposition that the
capital gains and net consideration had to be worked out within the
framework of section 54F of the Act without creating any fiction of
other section. Fiction, if any, is available only with respect to full
value consideration. Other relevant parts of the para 2.3 of the
impugned order read as under:

"Thus,
the capital gain arising from the transfer of any long term capital
asset for the purpose of section 54F has to be worked out applying
section 48 without imposing section 50C into it. As regards to net
consideration, the section itself has made it clear in the Explanation
the method in which it has to be arrived at. Needless to mention that
the words "such capital gains" and capital gains mentioned in section
54F(1)(a) and (b) of the Act refer to "the capital gains" arising from
the transfer of any long term capital asset worked out as mentioned in
section 54F(1) of the Act r.w.s 48 and not worked out as mentioned in
section 54F(1) r.w. sections 48 and 50C of the Act. When this
interpretation is adopted, every provisions of the Chapter will fall in
line without producing any absurd result and thereby giving a fruitful
purpose of enactments. Alternatively, as canvassed by the learned
authorized representative, if the terms capital gains "in section 54F
introduced section 50C of the Act would be defeated, because whatever
may be the capital gains arrived at by imposing section 50C of the Act
would be exempt, if the net consideration, however meager it may be, it
invested in the new asset." In light of these facts, the exemption u/s
54F(1) is allowed at Rs. 5,84,837/-and addition of balance long term
capital gains of Rs. 8,87,000/- arrived at after imposing section 50C is
confirmed. This ground is….… partly allowed."

8. Aggrieved
with the above, assessee is filed an appeal before the Tribunal. Ld
counsel mentioned that the there no dispute on the facts. The undisputed
facts are that the assessee owns a plot of land at Lonawala and
its purchase cost in July 1984 is Rs. 48,812. The indexed cost for the
AY 2008-09 is Rs. 2,15,163/-. Further, the assessee sold the same on
6.7.2007 for Rs. 8 lakhs and the sale deed supports the same. Rs.
16,87,000/- is the full value consideration of the plot as per the SRO
records. Assessee invested Rs. 33 lakhs by 15.2.2008 on the new assetin toto and
Rs. 17,65,752/- (sic- Rs. 18,75,752) during the period from July
2006-March 2008. Ld Counsel argued that the when Rs. 17,65,752/- is not
less than the 'net consideration' of Rs. 16,87,000/- (as per SRO), in
view of the provisions of clause (a) of 54F(1) of the Act, the assessee
is not chargeable to capital gains on this property. For this relied on
various decisions of the Tribunal. As per the said clause (a), Ld
Counsel mentioned that as the net consideration as per the sale deed
(Rs. 8 lakhs) and as per the FVC of the 50C (Rs. 16,87,000/-) falls
short of the 17,65,752/-, the assessee is not chargeable to capital
gains. It is submitted that the CIT (A) is incorrect in denying
exemption u/s 54F in respect of full value of consideration of Rs. 8.87
lakhs (Rs. 16.87 lakhs - Rs. 8 lakhs). Ld Counsel mentioned that the
decision of the Tribunal in the case of Gouli Mahadevappa, supra has
not discussed the said clause (a), which stipulates the chargeability
of capital gains u/s 45 of the Act. Further, Ld Assessee relied on the
decisions of the Tribunal in the cases of Gouli Mahadevappa 128 ITD 503
(para 8) and Jaipur bench decision in the case of Gyan Chand Batra 133
TTJ 482.

9. On the other hand, Ld DR for the revenue heavily relied on the orders of the AO and the CIT(A).

10. We
have heard the parties and perused the orders of the revenue and the
paper book filed before us. The issue in question relates to the extent
of capital gains exempt u/s 54F(1) of the Income tax Act, 1961, when the
'full value of the consideration' as
per the provisions of section 50C is adopted for computation of capital
gains. This is relevant in the context of computation of capital gains
by two methods i.e. (i) by using the 'full value of the consideration' as per the sale deed as per the provisions of section 48 of the Act and (ii) by using the deemed 'full value of the consideration' as per the provisions of section 50C of the Act. Relevant provisions read as follows.

Section
48: The income chargeable under the head "Capital gains" shall be
computed, by deducting from the full value of the consideration received
or accruing as a result of the transfer of the capital asset the
following amounts, namely :—

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto: ………………."

"Section
50C. (1) Where the consideration received or accruing as a result of
the transfer by an assessee of a capital asset, being land or building
or both, is less than the value adopted or assessed [or assessable] by
any authority of a State Government (hereafter in this section referred
to as the "stamp valuation authority") for the purpose of payment of
stamp duty in respect of such transfer, the value so adopted or assessed
[or assessable] shall, for the purposes of section 48, be deemed to be
the full value of the consideration received or accruing as a result of
such transfer……

Therefore
the quantity of capital gains vary depending on the 'full value of
consideration' used in the computation. If the deemed FVC is adopted,
the resultant capital gains are relatively more. Details of variants are
already given above. Now we shall examine the provisions of section 54F
of the Act, which actually deal with the procedure of computation of
allowable exemption and the conditions thereof.

Section 54F

[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

54F. (1) [Subject to the provisions of sub-section (4), where, in the
case of an assessee being an individual or a Hindu undivided family],
the capital gain arises from the transfer of any long-term capital
asset, not being a residential house (hereafter in this section referred
to as the original asset), and the assessee has, within a period of one
year before or [two years] after the date on which the transfer took
place purchased, or has within a period of three years after that date
constructed, a residential house (hereafter in this section referred to
as the new asset), the capital gain shall be dealt with in accordance
with the following provisions of this section , that is to say

(a)
If the cost of the cost of the new asset is not less than the net
consideration in respect of the original asset, the whole of such
capital gains shall not be charged under section 45;

(b)
If the cost of the new asset is less than the net consideration in
respect of the original asset, so much of the capital assert as bears to
the whole of the capital gain the same proportion as the cost of the
new asset bears to the net consideration shall not be charged under
section 45:

Provided…..

**

**

**

Explanation,- for the purpose of this section,-

"net
consideration", in relation to the transfer of a capital asset, means
the full value of the consideration received or accruing as a result of
the transfer of the capital asset as reduced by any expenditure incurred
wholly and exclusively in connection with such transfer."

11. From
the provisions of section 54F (1), it is evident that the provisions of
section (a) and (b) read with the explanation on 'net consideration'
decides if any chargeable capital gains u/s 45 exists or not subject to
the conditions specified therein. As per the provisions of section
54F(1)(a) of the Act, no capital gains are chargeable u/s 45 of the Act,
"If the cost of the cost of the new asset is not less than the net consideration in respect of the original asset".
The principle of proportionate exemption vide clause (b) above is put
into service. Now, the question is what is the meaning of the expression
'net consideration'? The same is defined in the Explanation below the
section 54F(1) and the same reads that "For
the purpose of this section (54F), net consideration', in relation to
the transfer of a capital asset, means the full value of the
consideration received or accruing as a result of the transfer of the
capital asset as reduced by any expenditure incurred wholly and
exclusively in connection with such transfer." It is a settled issue
that the provisions of section 54F of the Act are code by itself. Thus,
the plain reading of the provisions of sections 45, 48, 50C and 54F of
the Act suggest that there is nothing to bar benefits of exemption u/s
54F in respect of the capital gains relatable to the FVC as per the
deemed fiction u/s 50C of the Act. Clause (a) of section 54F(1)
specifies that If the cost of the new asset is not less than the net consideration in respect of the original asset, there is no chargeable capital gains u/s 45 of the Act. In the instant case, the cost
of the new asset is Rs. 17,65,752/- and 'net consideration' as defined
is '..the full value of the consideration received or accruing as a
result of the transfer of the capital asset as reduced by any
expenditure incurred wholly and exclusively in connection with such
transfer' i.e. Rs. 16,87,000 as per sec 50C and Rs. 8 lakhs as per the sale deed. The
said clause (a) refers to the provisions of section 45 of the Act. In
the given facts of the instant case, no chargeable capital gains arises
u/s 45 of the Act. Thus, in this case, with investment of Rs.
17,65,752/- in new asset, the cost of the new asset is not less than the net consideration (NC) in respect of the original asset. Of
course, the 'net consideration' has two variants depending on FVC
adopted and in this case, the NCs are quantitatively lesser than the
cost of the new asset leaving no chargeable capital gains u/s 45 of the
Act. Therefore, in our opinion, the assessee is not chargeable to any
capital gains considering the given facts of the case and also the said
clause (a) of section 54F(1).

12. We
shall now take up the orders of the Tribunal cited by the parties.
First, we shall take up the decision in the case of Sri Gouli
Mahadevappa 128 ITD 503 (Bang) dt 16.07.2010. Facts are that the
assessee sold plot for Rs. 20 lakhs. The consideration as per the SRO is
Rs. 36 lakhs. Assessee purchased new asset for Rs. 24 lakhs and
invested entire sale proceeds. AO calculated capital gains at Rs.
14,06,494 and allowed exemption to the extent of FVC of Rs. 20 lakhs and
not on FVC of Rs. 36 lakhs. On these facts, the Tribunal held that the
deeming fiction on FVC given in section 50C cannot be extended to
section 54F (para 8.19) as the same is an exemption provisions and is a
complete code in itself and it does not override others (Ace builders
281 ITR 210).

13. Thus, the cost
of the new asset is Rs. 24 lakhs and 'net consideration' as defined is
'..the full value of the consideration received or accruing as a result
of the transfer of the capital asset as reduced by any expenditure
incurred wholly and exclusively in connection with such transfer' i.e. Rs. 36 lakhs as per sec 50C and Rs. 20 lakhs as per the sale deed. Therefore,
it is case where the cost of the new asset is not less than net
consideration u/s 50C and more than the net consideration as per the
sale deed. Therefore, the decision of the Tribunal in this case is
distinguishable on facts. Therefore, clause (a) of section 54F(1) of the
Act does not apply.

14. Next, we shall examine the facts and the applicability of the decision in the case of Prakash Karnawat (supra)
dt 18.11.2011. In this case, the assessee sold a property for Rs. 40
lakhs. Sale value as per the DVO at Rs. 74,58,880/-. Assessee invested
the said sum of Rs. 40 lakhs in Bonds. Finally, AO taxed difference of
Rs. 34,58,880/-. Since, the assessee contended where the entire sum of
Rs. 40 lakhs is invested, the provisions of section 50C cannot be
invoked. On these facts, the Tribunal held that in principle, deeming
provisions of section 50C on 'full value consideration' will
not be applicable to section 54F as these provisions are asset specific
and it only meant for section 48 of the Act. Further, Tribunal held
that where the entire sale consideration is invested in Bonds as per
section 54EC of the Act, the assessee is entitled to deduction u/s 54F
and provisions of section are not applicable. Literal meaning of the
provisions of clause (a) of section 54F(1) of the Act was advocatged. In
the process, the Explanation to section 54F(1) of the Act, where 'net
consideration' was defined, was relied. Tribunal decision of Bangalore
bench in the case of Gouli Mahadevappa 128 ITD 503 (para 8) and Jaipur
bench decision in the case of Gyan Chand Batra 133 TTJ 482 were
followed. This case is also distinguishable on the facts that
considering the full value consideration as per the deemed provisions of
section 50C, the net consideration is much higher than the invested
amount, whereas in the present case, the net consideration by all
methods i.e. with or without application of 50C is lesser than the
investment in the new asset. Further, we have examined the decision of
the Tribunal in the case of Gyan Chand Batra 133 TTJ 482 dated
13.08.2011. Relevant facts of this case are that the assessee sold
property for Rs. 10.81 lakhs and full value consideration as per the SRO
is 19,24,987/-. Assessee purchased flat for Rs. 16.74 lakhs. It was
held that in view of the provisions of section 54F(1), the assessee is
entitled to deduction. The conclusions reads that the "deeming fiction s
provided in section 50C in respect of the words 'full value of
consideration' (FVC) is to be applied only to section 48 and, therefore,
meaning of full value of consideration as referred to in Explanation to
section 54F(1) is not governed by the meaning of the words 'full value
of consideration' as mentioned in section 50C''

15. Thus,
the gist of the above decisions suggest that the deeming fictional
meaning of section 50C cannot be imported for the purpose of explaining
the meaning of the 'net consideration' mentioned in Explanation u/s
54F(1) of the Act. In effect, for working out the exempt income also,
the deeming fiction does not have any effect in the circumstances where
the cost of the new asset is not less than the net consideration whether
computed as per the section 48 or 48 rws 50C. On this facts of the
present case, where the assessee undisputedly invested 33 lakhs
(1.4.06-31.3.2008) in toto and Rs. 17,65,752/- (July 2006-march 2008)
was invested during the specified period) mentioned in section 54F(1),
considering the provisions of the clause (a), the assessee is not
chargeable gains for taxation u/s 45 of the Act. Relevant facts are
tabulated as under:

As per the sale deed

As per the 50C of Act

Sale consideration

8,00,000

16,87,000

Cost of Acquisition

2,15,163

2,15,163

Capital gains

5,84,837

14,71,837

Cost of the new asset is Rs. 17, 65,752/-.

16. It
is noticed that the CIT(A) confirmed the addition on a couple of
reasons, namely (a) the provisions of section 54F(1) does not permit
invoking of the provisions of section 50C of the Act. Therefore, 'net
consideration'/full value consideration should be as per the sale deed
figures and not as per the deemed full value consideration figures; and
(b) the assessee is new asset includes only the Ground plus 1st floor
only and not in respect of two floors (sic). Further, we find that the
CIT(A) has not discussed the provisions of the clause (a) and (b) of
section 54F(1) of the Act in his order. Actually, the assessee's house
consists of Ground plus 4 floors. He relied on SB decision in the case
ofSushila M Jhavari, supra and
restricted the investment in first floor only and denied exemption in
respect of the investment in other floors. Elaborate discussion on why
such restriction was not given. Probably, CIT(A) is of the opinion that
the Ground plus 1st floor is one house and other floors refers to other
residential house. The said SB decision never disapproved the
allowability of the investment of capital gains in a residential house,
which may include two flats with one kitchen and the same are
functionally one dwelling unit, may located at two different floors, may
be adjacent vertically and horizontally. CIT(A) has not appreciated the
facts of the present case, where the assessee's house constructed
include ground plus 4floors, where the Ground floor is a big living
room, 1st floor: Kitchen plus 2 bed room; 2nd floor: three bed rooms;
3rd floor: three bed rooms and 4th floor: 3bed rooms. Thus, the said
details which are disputed by the revenue suggest that functionally, the
assessee's house in question constitutes one residential house only.
Therefore, the assessee's claim is in tune with the said SB decision in
the case of Sushila M Jhavery (supra). CIT(A) restricting the exemption of capital gains to Rs. 5,84,837 is not proper.

17. Therefore,
based on the factual matrix of the present case, where the assessee
invested total full value consideration of Rs. 16,87,000/- (as per the
SRO) in the residential house, which is one house only as it has only
one kitchen, and these FVC is less than the invested amounts of
17,65,752/-, during the specified period, the assessee is not chargeable
to tax on the capital gains u/s 45 of the Act. Whether we compute the
capital gains apply FVC as pr the sale deed or the deemed FVC as per the
section 50C, the net consideration is less than the investment in one
residential house. None of the decisions of the Tribunal cited above are
against such interpretation. Therefore, considering the provisions of
section 54F(1)(a) of the Act, we are of the opinion that the order of
the CIT(A) is not proper in denying exemption in respect of the capital
gains relatable to the deemed full value of the consideration mentioned
in section 50C of the Act. Accordingly, the grounds raised by the
assessee are allowed and in favour of the assessee.

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